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Charity Commission guidance on Charities’ use of empty buildings

Many charities are being approached by landlords who have premises that, despite being empty, are liable for the payment of business rates. Charities are entitled to mandatory relief of 80%, with an additional 20% available at the discretion of the local council, if a building is used ‘wholly or mainly’ for charitable purposes. So, on the face of it, arrangements where a charity occupies an empty building are beneficial to both parties. Many of these arrangements allow the charity to occupy the premises for little or no rent, perhaps even with a donation to the charity as an incentive.

However, charities should act with caution. Recently a number of them have had their entitlement to the relief challenged by the local council in the High Court. In one case, a charity is facing a rates bill of over £1.6m following the Court’s decision that, based on the circumstances of its occupation and use of the property, it was not entitled to the relief (although it is appealing this decision to the Court of Appeal). Only a very small part of the property was being used by the charity, and use for fundraising is not, of itself, charitable.

In the light of these cases, the Charity Commission has warned all charities that, as well as the risk that the charity may become liable for full business rates, its trustees may also be personally liable if they are found to have acted negligently or recklessly.

Its guidance for entering into arrangements such as these is as follows:

• be sure that the agreement is for the exclusive benefit of the charity, will further the charity’s purposes and objects and is in its best interests;

• ensure that the premises are genuinely required and fit for your purpose;

• consider the potential liability and ability of the charity to pay outstanding rates if the Local Authority disputes the use of the premises and refuses relief;

• ensure the charity is not being abused for the benefit of a commercial company (i.e. the landlord) and;

• take professional advice, including legal advice, before doing so.

The Charity Commission is already investigating a number of these arrangements and will look into more to see if there has been any misconduct or mismanagement by the Trustees.

For advice or information on use of buildings in this manner or other charity related matters please contact Richard King or Amy Laver on 01392 207020 or email charities@tozers.co.uk